Taking a broader view
of supply chain resilience
As supply chains become more global and complex, the impact of any disruption
intensifies. What’s needed today is an approach to resilient risk management
that incorporates four key components: longer term partnerships; government
policy that enables flexibility; an IT approach that fosters business continuity; and
a strategy of “dynamic operations” that makes supply chains more resilient to
BY JONATHAN WRIGHT
s supply chains have become
more global, more geographically concentrated, and more
efficient, the potential impact
of supply chain disruptions
has increased dramatically. Accenture’s
own research has found, in fact, that significant supply chain disruptions reduce
the share price of affected companies by 7
percent on average.
The World Economic Forum first began
exploring systemic risks and vulnerabilities to global supply chains and transport
networks in 2011. As the WEF noted, the
changing nature of these risks, along with
their greater potential impact, highlights
the need for companies to shift their focus
from reactive to proactive risk management. While risks from natural disasters
and demand shocks remain highly visible, other emerging risks such as cyber
threats, rising insurance, and trade finance
costs are leading supply chain managers
to look at new mitigation options. Accenture’s research indicates that more than 80
percent of companies are now concerned
about supply chain resilience.
The growing concern reflects the
changing risk landscape and particu-
larly the emergence of system-wide risks.
Unlike localized or company-specific risks,
system-wide risks are those which disrupt
supply chains across multiple locations
and a wide geographic area. They are created—or magnified—by the way supply
chain systems are configured, so they are
not easily resolved by individual actors. In
a globalized, interconnected world, any
major disruption—from an epidemic to a
fire—has the potential to cascade through
supply chains and permeate other systems.
The flooding in Thailand in 2011 exemplified how disruption in one area affects
companies all around the world. Thailand
is the world’s second largest computer
hard drive manufacturer, so the flooding
there spread fear among global computer
manufacturers. As analysts predicted that
worldwide hard drive production would
fall by as much as 30 percent in the final
quarter of 2011, computer manufacturers
reacted by snapping up existing hard drive
inventories. The long-term impact is still
evident in the increased cost of computer
These events—and others such as Hurricane Sandy, the Icelandic ash cloud, and
the Japanese earthquake and tsunami—
have forced political and business leaders to pay attention to supply chain risk.
Traditionally, businesses have been concerned with mitigating the impact of highprobability failures, while governments
and policy-makers have been concerned
with low-probability disruptions—such as
extreme weather events—that can cause
Systemic risks and operational failures
are, however, linked, and risk management must become a shared responsibility between the public and private sectors, between industries, and between
functional decision-makers in companies.
Cooperation is imperative and all groups
need to have a common understanding
of the issues. A shared risk assessment
framework can deepen collective knowledge of both low- and high-probability
supply chain risks, helping focus organizational agendas upon the top challenges to
Different regions, different risk
In 2012, the WEF’s Supply Chain Risk
Initiative conducted a detailed survey
across Europe, North America, and Asia,
Supplier Management: Increased collaboration to accelerate global shipments
via the Supply Chain Risk Radar, an analytical and self-diagnostic tool developed
by WEF. The aim of the survey was to
understand how the risk landscape varied across the three regions and how top
risks compared with the top five global
risks from 2011. Survey respondents considered global risks and their potential to
cause system-wide disruptions in global
ply chains. These include the effects of
pandemics on border crossings and workforces; earthquake disruptions to mainland routes; bombing of major supply
chain nodes; trade barriers to raw materials and specialized products; and cyber
disruptions to supply chains.
Growing concern with cyber risks
In regional workshops hosted by the
Supply Chain Risk Initiative
throughout 2012, cyber risk
stood out as the most pressing
non-traditional risk facing supply chain experts. Complexity compounds the cyber risk
issue, as information technology
(IT) has enabled supply chains
to evolve into interdependent
material, financial, and information flows. While this increases
efficiency, it also exposes supply
chains to cyber risk which can
result in system-wide failure.
A fluid, responsive ecosystem of
Beyond accidental failure,
cyber threats include criminal
processes, people, and technologies
activity, government attacks, termay provide better capability for a
rorism, and corporate espionage,
ready response to disruptive events.
as well as the danger of “hacktivism” by cyber groups with a
Four of the top five risks (natural disas- wide range of motivations. Technology
ters, conflict and political unrest, terror- processes and people are the main vulnerism, and sudden demand shocks) remained abilities of a virtual system, while potenunchanged. Extreme weather, however, tial risks range from infrastructure damage
emerged as a more prevalent concern in to reputational and intellectual property
2012, with an overall ranking of number impairment. These vulnerabilities and
two among the top five global risks.
risks become even more alarming as many
North American respondents had a nota- traditional supply chains evolve into digital
bly higher level of concern about terrorism supply chains.
than did European and Asian respondents.
While North American policies and regu- Building supply chain resilience
lations have been focused on addressing In view of this expanding risk profile, supterrorism—sometimes while hindering ply chain managers need to think about
trade—this seems to be changing. In 2012, risk management as well as on reducing
respondents said that security measures costs and increasing reward. While it is
and supply chain systems are increasingly hard to see risk management as a comco-designed to facilitate rather than dis- petitive advantage, effective risk managerupt trade.
ment and increased efficiency need not
This approach is reflected in the be mutually exclusive. Indeed, a numNational Strategy for Global Supply ber of business innovations in recent
Chain Security announced by the White decades have reduced high-probability,
House in January 2012, which addresses profit-sapping risks. These include lean
a broader range of risks affecting sup- supply chains, which, by design, expose
the causes of frequent failures, forcing organizations to learn and design
reliability into their processes; globalization, which provides opportunities for
diversification of supply; specialized production and scale, which accelerate learning and the smoothing out of potential
risks; and IT-enabled visibility, which gives
advance warning of problems and offers
While these advances can help organizations manage the less likely major systemic disruptions, they can also amplify
risks. Lean supply chains can shut down
in hours, and learning from past events is
of little use during once-in-a-generation
failures. Global supply chains affect many
more people, and supply chain and IT reliance can cause chaos if critical nodes fail.
In the face of these challenges, organizations should have a blueprint for improving the resilience of their supply chains.
Such a plan can help align and organize
priorities to address the most problematic
global supply chain risks.
In workshops and discussions throughout 2012, participants in the Supply Chain
Risk Initiative discussed and debated a
priority ranking of 11 possible measures
of resilience. The results displayed some
regional and sectional differences. North
America and Europe, for example, identified harmonized legislative and regulatory
standards as the top priority, while Asian
respondents said that improved information sharing between government and
business was the top priority for building
supply chain resilience.
European and North American respondents emphasized the importance of building a culture of risk management across
suppliers. This is less valued in Asia,
where the growth opportunities in emerging markets encourage high-risk strategies
for maximum return. Many Asia-based
supply arrangements are newer and more
fluid, resulting in weaker lines of communication and more difficulty in establishing
a culture of risk management.
In the aggregate, the top five joint resilience measures were as follows:
1. Improved information sharing
between governments and businesses.
2. Harmonized legislative and regulatory
3. Building a culture of risk management across suppliers.
4. Common risk assessment frameworks.
5. Improved alert/warning systems.
Asian respondents identified improving alert and warning systems as a higher
priority than their counterparts in North
America and Europe. Inadequate capacities for providing early alerts for earthquakes, tsunami, and flooding affecting
Asia in 2011 may have contributed to this
Public and private sector
The public sectors in North America and
Europe are interested in tiered classification of firms and procedures to allow preferential treatment in times of disruption.
Governments in Asia, however, are traditionally less motivated by this concern.
High levels of competition in the region
can result in high rates of supplier substitution, on the assumption that equally
capable suppliers can be rapidly integrated. North American and European
public sectors have placed more emphasis
on retaining partnerships, so companies
are placed under more scrutiny to assess
their long-term reliability.
Two key private sector priorities
emerged: First, the use of exercises to
stress-test assumptions and plans, and, second, the development of trade resumption
plans, protocols, and lines of authority to
redress major concerns. These are important because of the diversity of supply chain
configurations available to businesses, the
criticality to their bottom line of selecting
the correct one, and the need—when a
disruption occurs—to prevent loss of market share to more resilient or unaffected
competitors. Some private sector firms also
fear the complexities and unintended side
effects of government action.
The workshops revealed a widely held
view that public sector supply chain
experts are predominantly focused on border security as a risk, and on private sector transparency as a means of increasing
resilience. The public sector is criticized
for paying too little attention to other tion and assemble the resources needed
levers by which resilience can be encour- for response to major disruptions. There
aged or enhanced. For example, authori- is broad agreement that governments
ties monitoring competition could pay should aim for maximum flexibility durmore attention to the availability of inde- ing times of disruption, while providing
pendent component sources much deeper incentives for building resilience during
in the supply chain.
times of stability. A government’s abilConsumers are also seen as being ity to intervene during a crisis should be
under-involved in setting resilience priori- calibrated to avoid rewarding poor risk
ties. Consumer testing of tolerance levels preparation or too-big-to-fail supply chain
and trade-offs is needed to update corpo- developments. Governments can also act
rate and government assumptions. Con- as information brokers; administrations
sumers often care more about knowing that are able to provide strong information
definitely when their order will be filled flow play a key role in protecting supply
than they do about rapid delivery.
Despite regional and sectional differ• Strategy. Supply chains estabences, supply chain experts agreed on a lished during more stable times need to
proposed blueprint for resilient supply be reshaped for operation in an era of
chains. The proposed blueprint contains increased volatility. Although a number of
four core components: partnerships,
policy, strategy, and information technology (IT).
• Partnerships. Supply
chains show a move away
from “agnostic” outsourcing towards long-term partnerships. In such relationships, resilience can be
built via improved security,
information sharing, and
At a broader level, better knowledge of a partner
can enable more targeted
risk management. This is the Despite regional and sectional differences,
basis of authorized economic supply chain experts agreed on a proposed
operator programs devel- blueprint for resilient supply chains that
oped by customs authorities
contains four core components: partnerships,
worldwide. Both government- and business-driven policy, strategy, and IT.
partnerships must retain
open architectures and harmonized stanstrategies can be applied to make this hapdards to allow accessibility and competition.
pen, it is the capacity to adapt, rather than
• Policy. Regulations restrict freedom
the actual strategy, that creates resilience.
of action and may, therefore, inadvertently
Our concept of “dynamic operations”
reduce the flexibility required for building identifies certain organizational capabilities
greater resilience. Governments can, how- that can make supply chains more resilient
ever, shape actions to benefit the public, to potential disruptions. For example, supply
whether through trade, security, invest- chain operators should be able to synthesize
ment, or other policies that directly or external and internal data and rapidly take
indirectly affect resilience.
action to minimize the impact of any disrupGovernments can foster the cooperation. And supply chain structures should be
Supplier Management: Increased collaboration to accelerate global shipments
adaptable and agile, so that they can quickly
adjust and respond to market and economic
• Information Technology. The application of IT within supply chains has
increased dramatically. If correctly configured, IT can provide significant gains in
resilience through the channels of analytics, data and information sharing, scenario
modeling, and pre-programmed responses.
Data and information sharing remains
the key to IT resilience. Business continuity is protected through access to real-time
data, followed by rapid dissemination of
data-driven supply chain fixes. Informationsharing infrastructures, however, depend
on a resilient core network, appropriate
communication tools, and at least some
redundancy. This requires IT systems that
are scalable, secure and re-routable.
Moving to dynamic operations
As the WEF report demonstrates, supply chains have evolved rapidly. For many
organizations, the supply chain is no longer a singular operating model—a more
or less straight line fostering the efficient
movement of goods. Rather, companies
operating in vast, diverse regions may need
structures that are more like “demand and
supply webs.” This may mean re-thinking
accepted concepts such as supply chain
integration. A fluid, responsive ecosystem
of processes, people, and technologies
may provide better capability for a ready
response to disruptive events.
Four capabilities make dynamic operations possible:
1. Agile Execution: rapidly adjusting supply chain actions by dialing capacity up and down, improving
collaboration, formulating supplier contingency plans, and implementing advanced
technology such as predictive analytics.
The mantra is “flexible resource allocation,”
made possible by an elastic infrastructure.
2. Adaptable Structure: creating products, processes, and systems that are easily
modified in response to changing conditions. The best and clearest example may
be flexible manufacturing: the ability to
respond quickly to currency fluctuations,
supply disruptions, and sudden demand
If correctly configured, IT can provide significant gains in resilience
through the channels of analytics, data and information sharing,
scenario modeling, and pre-programmed responses.
shifts by altering manufacturing volumes,
mixes, and venues.
3. Insight to Action: sensing, capturing,
and analyzing external and internal data
and turning it into usable business intelligence. In effect, companies use information to improve their ability to buffer risk
while swiftly leveraging new opportunities.
4. Flexible Innovation: making design
and development processes less rigid by
reducing changeover times, increasing
that embrace multi-channel networks
and technology, and structuring ways to
smoothly and rapidly rebalance order management, production and warehousing in
response to shifting conditions.
One way to think of dynamic operations is as a less tightly integrated, more
flexible, non-linear coalition of supply
chains. This flexibility can help a company
navigate unpredictable markets. When
market opportunities arise (or when disruptions occur), dynamic operations can
help companies respond more quickly
and effectively. Think in terms of moredynamic, tailored models such as country-based transportation management or
regional (or sub-regional) customer service
approaches. The idea is centralized oversight and analytics combined with decentralized execution.
In addition to adding resilience, dynamic,
decentralized operations can allow companies to deal more effectively with cross-border challenges, differences in taxation, geographic obstacles, technological variations,
and labor discrepancies. Similarly, while
just-in-time supply chains add value, companies may need to adjust inventory levels
and SKUs to achieve acceptable levels of
Systemic risks—with global geographic scope, cross-industry relevance,
uncertainty as to how and when they will
occur, and high levels of economic and/or
social impact—have become a major concern for supply chain operators. Building
risk management into supply chain governance is essential, but broader measures
are also necessary. Through greater public
and private sector collaboration—including activities such as the WEF’s Supply
Chain Risk Initiative—we are deriving a
more comprehensive view of supply chain
risk and the measures needed to build
greater resilience while increasing both
the efficiency and the effectiveness of
global supply chains.
Jonathan Wright is a managing director in the Operations consulting group at
Accenture, a global management consulting, technology services, and outsourcing
company. He can be reached at Jonathan.